Efficiency in Politics: Competing Economic Approaches

Abstract

The article reviews four recent economic books on efficiency in democracy. Special emphasis is given to two ambitious competing approaches: Mancur Olson's theory of encompassing interests and Donald Wittman's Myth of Democratic Failure. It is argued that the thesis that democracy should generally be presumed to be efficient is problematic in several respects. Sweeping conclusions are reached by virtue of a superficial application of economic analogies, which abstracts away many crucial characteristics of democratic politics, such as information imperfections, weak incentive structures, and collective action failures. The basic explanation for efficient outcomes may have more to do with the size of rulers' stakes in the economy than with voluntary Coasean bargaining.